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Five Thoughts About Planning for your Vacation Home

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It’s officially summer, and our thoughts turn to summer fun, perhaps at a vacation home of a friend or family member or, if you are lucky enough, yours! If you are the owner of a vacation home, it’s never too early to think about planning for this unique asset. Is this a property you wish to pass on to your children and grandchildren so the good times can continue long after you’re gone? In many cases, the property holds a special place in your family’s hearts and memories, so it is especially important to make sure the property will be there for them to enjoy. Here are five things to consider when planning for your vacation property:

1.  Do Your Children Share Your Hopes and Dreams?
It’s important to determine if you and your family share the same vision for the future of your vacation home. You may intend to leave your vacation home to all of your children to use and enjoy for their lifetimes, but it is important to consider whether your plan is realistic. Take a hard look at how the property is used and by whom. Do all of your children enjoy the property and will they continue to do so in the future, taking into account their busy lives and where they live? Or is the home primarily used by one or two children who live close enough to visit often? When planning for the future of your vacation home, talk to your children about your thoughts and encourage them to be honest with you. Knowing who wants to keep the property and who has no interest in owning a second home is vital information before you begin your planning. If the home will be left to some but not all of your children, you should consider whether it is important to equalize the inheritance each will receive, and whether that is possible considering the other assets you own.

2.  How Will the Bills Get Paid?
Acquiring a second home is only half the battle. Maintaining a second property requires time and resources. If you are leaving vacation property to family members, consider whether they will be able to maintain it taking into account the carrying costs of the particular property, its age, and anticipated future expenses. If you intend for the owners to contribute to the cost of maintaining the property after your death, consider whether all of them can afford to do this, or whether it makes sense to leave the property (and the financial burdens of its maintenance) to those who can afford the expenses that go along with owning such a property. If you are financially able to do so, you may want to leave extra money to support the property which can be used to pay ongoing expenses and make repairs as needed, and take the burden of those expenses off of your family members. If this is the route you choose to go, don’t underestimate the funds that may be needed, and err on the generous side if you are unsure.

3.  How Will Decisions be Made?
No matter how smart your children are or how well they get along, it is always helpful to have a plan for how decisions will be made about who can use the property and when, what improvements will be made to the property, and when and if the property should be sold. It is helpful, whether in a Trust or other written agreement, to set out rules that clearly govern how these matters are decided, and how disputes are resolved. If a child cannot contribute to his share of the expenses, or wants to sell his interest in the property, a structured plan will allow for such transitions, including the opportunity for siblings to buy out one another. If disagreements arise and there is no clear path to resolution, this will ultimately lead to the sale of the property, which is not a good result unless it is one that is agreed on by all involved.

4.  Don’t Forget the Tax Planning.
Vacation homes are often a beloved asset, but they are an asset nonetheless, subject to estate tax like the other assets in your estate. If you have a taxable estate (which means the total value of all of your assets exceeds $1 million if you are a Massachusetts resident), it is crucial to consider how estate taxes will be paid when planning for a vacation home that will not be sold following your death. In some sad situations, the next generation would love to keep the vacation property, but the estate taxes payable at the parents’ deaths are so steep that they cannot afford to do so. Consider undertaking planning to reduce the tax bite at your death. This type of planning may include gifting the property or an interest in the property during your lifetime. Consider whether owning vacation property in an LLC may be appropriate if the owner lives out of state and the vacation home is located in Massachusetts. Consider using life insurance to provide a resource from which estate taxes can be paid, reducing the possibility that the property will need to be sold to satisfy a tax obligation. And consider incorporating generation-skipping tax planning into your estate plan to reduce or eliminate estate tax that would otherwise be payable in your children’s estates

5.  Transfer during lifetime or at death?
Many vacation homeowners intend to continue to own their property during their lifetimes and leave the property to their heirs at their deaths. By doing so, they remain the sole decision-makers and keep their options open: they could sell the property, rent it out, change their minds about who will inherit it, etc. However, transferring ownership to the next generation during the parents’ lifetimes can make sense for tax planning or long-term care planning reasons. Lifetime gifts of vacation homes are something that should be considered, balancing the capital gain tax and control implications of such a gift against the estate tax cost of retaining ownership until death. However, keep in mind that if you intend to use your vacation home after giving it away, rent will need to be paid to the new owners to avoid inclusion in your estate for estate tax purposes.

Thoughtful and timely planning for a vacation property can ensure the property will pass to future generations in a way that will minimize issues and maximize the chances the property will be enjoyed by your family for generations to come. If you have a vision of your descendants enjoying your beloved cottage and building memories there, take the necessary steps now to make your wishes a reality.

Maria Baler, Esq. is an estate planning and elder law attorney and partner at Samuel, Sayward & Baler LLC, a law firm based in Dedham. She is also a former director of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (MassNAELA), and the former President of the Board of Directors of the Massachusetts Forum of Estate Planning Attorneys. For more information, visit www.ssbllc.com or call (781) 461-1020. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney.

July 2023
© 2023 Samuel, Sayward & Baler LLC

What’s Love Got to do with it? – Estate planning for Second Marriages

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As June is sometimes referred to as ‘wedding season’, what better time to talk about critical planning for those who dip their toes into the legal status of ‘married’ for the second (or third, or fourth) time.   

Marriage is not just about declaring your love in the presence of your family and friends.  Marriage is a legal contract which creates certain rights and obligations under the law for those who enter into that contract.  While most people understand that divorce results in a couple’s assets being divided between them as a court determines if they cannot agree to terms themselves, not everyone is aware that marriage creates rights in a surviving spouse as well, and unlike divorce, it doesn’t matter whether it was a 2-week long marriage or a 2-decade long marriage. 

Death without a Will

When someone dies without a Will in place they are said to have died ‘intestate’ and their probate estate will be distributed under the intestate laws of the state in which they were domiciled at the time of death.  If a married person dies intestate, the determination of the share of the probate estate that will pass to the surviving spouse is based on the decedent’s other family members who survive.  For example, if husband dies leaving wife and children surviving and all of the couple’s children are children of their marriage, then husband’s entire estate will pass to the surviving spouse.  However, if either husband or wife has a child from a prior marriage/relationship, then the amount passing to the surviving spouse is the first $100,000 plus 50% of the remaining probate estate. 

Death with a Will 

A Will is the estate planning document that controls the distribution of a person’s probate estate.  If you do not want the Commonwealth of Massachusetts to dictate the distribution of your estate, then make a Will that sets out your wishes.  Under the Massachusetts Uniform Probate Code (enacted in 2012) even a Will made prior to a new marriage remains valid where that Will leaves assets to the decedent’s children. 

But Beware the Spousal Elective Share

However, even if a deceased spouse leaves a Will, there is a Massachusetts statute that grants a surviving spouse the right to ‘take against the Will’ of the deceased spouse and claim the so-called spousal share.  Similar to the intestate share, the amount of the spousal share depends on who are the other surviving family members of the decedent.  For example, if the decedent left descendants, then the surviving spouse would be entitled to $25,000 and a ‘life estate’ in one-third of the remaining estate.  While this law is intended to protect a surviving spouse from being disinherited, the effect of this statute can be to wreak havoc on an estate plan in a second marriages and can feel especially unfair in short-term marriages.

What’s the Solution?

As with so many things, the solution lies in advance planning.   A prenuptial agreement which is properly entered into before the marriage, is the best way to make sure that both parties’ intentions are carried out. This allows the parties, and not the Commonwealth of Massachusetts, to determine how their assets will be distributed in the event of divorce or death.  

If we can be of help to you with these or other estate planning or estate and trust administration matters, please contact our office to schedule an appointment to meet with one of our attorneys. 

 Attorney Suzanne R. Sayward is a partner with the Dedham firm of Samuel, Sayward & Baler LLC which focuses on advising its clients in the areas of estate planning, estate settlement and elder law matters. She is certified as an Elder Law Attorney by the National Elder Law Foundation, a private organization whose standards for certification are not regulated by the Commonwealth of Massachusetts.  This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit www.ssbllc.com or call 781/461-1020.

June, 2023

© 2023 Samuel, Sayward & Baler LLC

The Certainties in Life: Death and Taxes

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5 Things to Know About Alternate Valuation for Estate Tax Purposes

Federal Estate Tax 

When a United States citizen or resident passes away, the estate of the deceased person may be required to file a federal estate tax return and may have to pay a federal estate tax. The estate tax is a one-time tax that is payable after death on the value of your “estate,” which is essentially any assets you own or control at the time of your death. An estate tax return is due on the nine-month anniversary of the deceased’s date of death.

The good news for most people is that the federal estate tax exemption is $12.92 million per person as of January 1, 2023 ($12.06 million in 2022). This means that if the value of the assets you own at the time of your death (your so-called “taxable estate”) is less than the exemption amount, you do not have to file a return or pay a federal estate tax.  A surviving spouse may elect to assume their deceased spouse’s unused exemption, which allows married couples to pass $25+ million combined.  Estate tax is also not payable on the value of assets left to your surviving spouse or to charity. The federal estate tax exemption is adjusted annually for inflation.  The current federal estate tax law is scheduled to sunset on December 31, 2025, and if not extended by Congress prior to that date will cause the estate tax exemption amount to drop to $5 million, adjusted for inflation.

Massachusetts Estate Tax

However, if you pass away as a Massachusetts resident and the value of your taxable estate is $1 million or more, currently your estate will have to pay a Massachusetts estate tax. The Massachusetts estate tax is a one-time tax payable to the Commonwealth on the transfer of assets from a deceased person to their beneficiaries. The Massachusetts estate tax is also due 9 months after the date of death, and any estate tax due must be paid by that time to avoid interest and penalties from accruing, even if the filing of the return is extended

  1. What is Alternate Valuation?

How do you determine the value of a deceased person’s “estate”? Typically, assets are valued in one of two ways for estate tax purposes: either using the date of death value or using “alternate valuation.” The date of death value of an asset is the fair market value of the asset on the decedent’s date of death. Alternate valuation evaluates the fair market value of an asset 6 months after the decedent’s date of death (or on the date of disposition if the asset was distributed, sold, exchanged, or otherwise disposed of prior to the 6-month date).

  1. Using Alternate Valuation

When filing an estate tax return, the estate can elect to use the date of death value of the deceased’s assets, or the alternate value.  Alternate valuation can only be used if the overall gross value of the estate is less than the date of death value and the estate tax calculated on the alternate value is less than the estate tax liability for the value of the estate as of the date of death. Alternate valuation must be elected for all of the assets in the estate. You cannot “cherry pick” certain assets to use the alternate valuation instead of the date of death value; the election for the assets is all or nothing.

  1. Who Elects Alternate Valuation?

Alternate valuation is elected by the individual administering the estate; this is often the Personal Representative (Executor) of the estate or Trustee of the deceased’s Trust if there is no probate estate. The Personal Representative or Trustee elects alternate valuation on the deceased’s estate tax return and reports both the date of death values and the alternate values on the return.

  1. Assets that Fluctuate in Value

Alternate valuation applies only to assets that change in value due to market conditions, such as real estate and stocks. If electing alternate valuation, all assets that fluctuate in value must be valued as of the date of death and as of the alternate valuation date (unless they have been sold or distributed prior to the alternate valuation date, in which case they are valued as of the date of sale or distribution). For assets that that do not fluctuate, their value is locked in as of the decedent’s date of death (such as bank accounts and life insurance).

  1. Why to Use vs Not Use Alternate Valuation

Deciding whether to elect alternate valuation is something that should be explored carefully with an experienced estate planning attorney or tax expert. The choice of whether to elect alternate valuation depends on individual circumstances, financial goals, and consideration of tax consequences. The potential estate tax saved by using alternate valuation should be weighed against other potential tax implications, such as changes to the step-up in basis and the impact of using alternate valuation in calculating capital gains.

If you have questions about the estate tax, how alternate valuation is assessed, and/or what can be done to reduce the estate tax that may be owed on your estate, please call our office and schedule a time to meet with one of our experienced estate planning attorneys.

June, 2023

© 2023 Samuel, Sayward & Baler LLC

 

 

Update on Credit Shelter Trusts

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Attorney Maria Baler details a new position taken by the Massachusetts Department of Revenue on Credit Shelter Trusts regarding the inclusion of half of the value of a house funding the credit shelter trust of the first spouse to die in the taxable estate of the surviving spouse for Massachusetts estate tax purposes when the house was previously owned by both spouses. Please watch and if you have any questions or want to learn more please call us at 781 461-1020.

Smart Counsel Series – The Do’s and Don’ts of Serving as a Trustee – A Study in Contrasts

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Please watch our pre-recorded webinar in our Smart Counsel Series which aired on Thursday, May 18, 2023 virtually via Zoom. Attorneys Suzanne R. Sayward and Megan L. Bartholomew presented the Do’s and Don’ts of serving as a Trustee.

If you have been named to serve as Trustee for a family member or friend, or if you have created a Trust in which you have named someone to serve in that role should you become incapacitated or when you pass away, you may be wondering what is involved in taking on such a commitment. The answer is – A LOT!

The presenters discussed the specific tasks a Trustee must undertake along with the general duties and responsibilities of a Trustee. Examples of the right way – and the wrong way – of carrying out the duties of serving as a Trustee can help you understand what is involved in serving in this important role.

 

How is Estate Planning Similar to Gardening?

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It’s that time of year when gardeners are breaking out their trowels and sunhats, and perusing nurseries for plants to create their gardens for the summer.  I love gardening and have spent that last couple of weekends planting seeds and seedlings of tomatoes, peppers, green onions, potatoes, kale, spinach, radishes, cabbage and Swiss chard.  And I still have more to plant!  While digging in the soil, it occurred to me that gardening and estate planning are similar in a few ways.

Last year, I planted several tomato plants on my deck and patio.  Mid-way through the summer, the tomato plants on the deck were decimated by an infestation of spider mites.  By the time I took action, it was too late to help the deck plants but luckily, I was able to save the tomatoes on the patio.  Now I am more knowledgeable and better prepared to stop the pests in their tracks if I encounter the same problem this year.  Creating an estate plan requires the same perspective.  Your estate plan should be rooted in the present based on your finances, family and health, but prepared to address both expected and unexpected circumstances. In short, your estate plan should have a solid foundation and the flexibility to branch in several directions depending on the situation that arises.

I also planted yellow squash and zucchini for the first time last summer.  The zucchini grew spectacularly; the yellow squash did not, despite fertilizer, more water, etc. I plan to plant yellow squash again this year, however, it will be a different variety and in another location with the hope that it will grow better.  Similarly, you should adjust your estate plan regularly through the years.   If you or your loved ones have major changes in health or finances, your estate plan may need to be updated. For example, if you name an adult child as your Personal Representative and she passes away, your Will should be updated to replace her and name a successor.  Additionally, you may want to direct that her inheritance is distributed differently than what is in your current Will.

For years, I have planted basil and marigolds with my tomatoes.  Besides the bright yellow, orange and red marigolds drawing attention to the cherry tomatoes hiding in the green foliage, the flowers also provide protection from several pests that can damage the tomato plants (except spider mites apparently).  Beyond pest control, some plants provide beneficial nutrients to the soil for other plants. Like strategically growing certain types of plants together, it is important to consider the relationships of the individuals you appoint to manage your estate after your death.  I often have clients ask if their adult children can serve together as fiduciaries (Personal Representatives, Trustees, Attorneys-in-Fact) when the real question is should they serve together.  If one of your goals is to preserve a harmonious relationship between your adult children and minimize conflict that could cause estrangement for the rest of their lives, it may be better to name one at a time, depending on your particular circumstances and their dynamics.

These are just a few examples of how estate planning and gardening are similar. At Samuel, Sayward & Baler LLC, our knowledgeable attorneys will meet with you to thoughtfully assist with developing a foundational estate plan or adjusting your estate plan because of changes in your life.  And after meeting, I will return to playing in my garden.

Attorney Abigail V. Poole is a senior associate attorney with the Dedham firm of Samuel, Sayward & Baler LLC which focuses on advising its clients in the areas of trust and estate planning, estate settlement and elder law matters. She is an active member and current President of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (NAELA).  This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit ssbllc.com or call 781/461-1020. 

May, 2023

© 2023 Samuel, Sayward & Baler LLC

5 Reasons to Engage an Elder Law Attorney

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May is Elder Law Month and was established by the National Academy of Elder Law Attorneys (NAELA) as a way to bring attention to the particular legal needs of the older adult community. While all adults should create an estate plan to ensure that their wishes are carried out if they become incapacitated or when they pass away, the needs and concerns of older adults are different than those of younger people. Elder law attorneys are attuned to the issues that impact older adults and skilled at addressing those issues. Read on for five reasons why engaging an elder law attorney as you age is important.

1. A Durable Power of Attorney is a legal document in which the maker (the Principal), designates a person (the Attorney-in-fact) to have the authority to manage the Principal’s financial affairs. For estate planning purposes, a Durable Power of Attorney is created to insure that should the Principal become incapacitated, the Attorney-in-fact will have the legal authority to act on behalf of the Principal with respect to legal and financial affairs and non-medical matters. For many older adults, protecting assets from having to be spent down on long-term care costs is important. In order to ensure that their Attorney-in-fact has the authority to undertake long-term care planning, a Power of Attorney must specifically authorize actions that are typically needed to protect assets from spend down. These include granting the Attorney-in-fact the authority to make gifts of the Principal’s assets, create an irrevocable Trust, and so-called ‘self-dealing’ authority. Elder law attorneys are knowledgeable about the importance of these provisions for older adults.

2. Older adults often worry about protecting assets from the high cost of long-term care; something that is not a concern for younger people. Elder law attorneys can advise clients about their options for protecting assets from having to be spent down on long-term care costs along the with the advantages and consequences of such planning.

3. As they age, parents may feel more financially secure – the children are grown and living on their own, college is paid for, there is no longer a mortgage on the house – which may make them more inclined to make gifts to children and grandchildren. While most estate planning attorneys are skilled in advising clients about the tax aspects of gifting, elder law attorneys will also advise clients about the impact that gifting will have on their eligibility for long-term care benefits. This can avoid a serious ‘trap for the unwary’ in the event long-term care benefits are needed.

4. Long-term care insurance can be an excellent ‘tool’ in a person’s long-term care planning tool-box. While elder law attorneys do not sell long-term care insurance, they often work closely with individuals who are specialists in long-term care insurance. Elder law attorneys can advise clients as to how long-term care insurance would work as part of a long-term strategy for payment of care costs as the client ages.

5. Health Care documents consisting of Health Care Proxies, Living Wills and HIPAA Authorizations are important components of every estate plan. For seniors, making sure that their Health Care Proxy includes provisions permitting their appointed agent to make decisions regarding end-of-life care, administration of certain types of medications, and to contract for care givers or care facilities on behalf of the Principal is critical to ensuring that trusted family members, and not a probate court, are the ones making decisions in times of crisis.
Making sure that one’s affairs are in order is a primary goal of estate planning. For older adults, working with an elder law attorney means working with an attorney who is attuned to their particular legal needs. If you are an older adult, ‘celebrate’ Elder Law Month by contacting an elder law attorney to review your estate plan documents to ensure they are consistent with your current goals and concerns.

Attorney Suzanne R. Sayward is a partner with the Dedham law firm of Samuel, Sayward & Baler LLC which focuses on advising its clients in the areas of estate planning, estate settlement and elder law matters. She is certified as an Elder Law Attorney by the National Elder Law Foundation, a private organization whose standards for certification are not regulated by the Commonwealth of Massachusetts. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit our website at www.ssbllc.com or call 781/461-1020.

May, 2023

© 2023 Samuel, Sayward & Baler LLC

Wills • Trusts • Elder Law • Long-Term Care Planning • Estates

©2024 Samuel, Sayward & Baler LLP. All Rights Reserved. The information presented on this website should not be construed to provide legal advice, nor does it constitute the formation of an attorney/client relationship. Read the disclaimer.